The Tax Publishers2020 TaxPub(DT) 0078 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 41(1)

There was nothing on record to suggest that there was remission or cessation of liability and that too, during previous year relevant to concerned assessment year, accordingly, AO was not justified in making addition under section 41(1) as regards trade payables. Merely because payables remain outstanding for 7 years it cannot be said that the assessee got some benefit with respect thereto.

Business income under section 41(1) - Remission or cessation of trading liability - Trade payables outstanding for longer period - No evidence as to assessee having obtained any benefit either in cash or otherwise on account of cessation or remission of trading liability.

Assessee-company had shown trades payable of Rs. 20 crores. AO noticed that assessee had shut operations in March 2005. For assessment year under consideration, almost 7 years have passed after its closure. Perusal of balance sheet revealed that all the assets and liabilities were shown unchanged over the last year. Therefore, AO required assessee to submit proof regarding existing liabilities on account of trade payable. As assessee could not bring any confirmation from creditors nor could it produce supporting evidences to prove liability in respect of balance creditors. AO made addition under section 41(1).Held: There was nothing on record to suggest that there was remission or cessation of liability and that too, during previous year relevant to concerned assessment year. Accordingly, AO was not justified in making addition under section 41(1).

REFERRED : CIT v. Sugauli Sugar Works Pvt. Ltd. (1999) 2 SCC 355 (SC) : 1999 TaxPub(DT) 1163 (SC), Dattatray Poultry Breeding Farm Pvt. Ltd. v. Asstt. CIT (2019) 104 Taxmann.com 366 (Guj.) : 2019 TaxPub(DT) 2821 (Guj-HC), CIT v. Bhogilal Ramjibhai Atara (2014) 222 Taxman 313 (Guj) : 2014 TaxPub(DT) 1536 (Guj-HC), CIT v. Hardik Fabrics [Tax Appeal No. 770 of 2013, dt. 16-9-2013], CIT v. G.K. Patel & Co. (2013) 212 Taxman 384 (Guj.) : 2013 TaxPub(DT) 533 (Guj-HC), CIT v. Nitin S. Garg (2012) 208 Taxman 16 (Guj.) : 2012 TaxPub(DT) 2362 (Guj-HC), CIT v. Miraa Processors (P) Ltd. (2012) 208 Taxman 93 (Guj.), CIT v. Willard India Ltd. (2008) 302 ITR 221 (All) : 2008 TaxPub(DT) 693 (All-HC) and Ambica Mills Ltd. v. CIT (1964) 54 ITR 167 (Guj.) : 1964 TaxPub(DT) 205 (Guj-HC).

FAVOUR : In assessee's favour.

A.Y. : 2012-13

IN THE ITAT, AHMEDABAD BENCH

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